On November 6, Senate Banking Committee Chair Tim Scott (R-SC), along with a group of Senate Republicans, published a letter sent to Fed Chair Jerome Powell and Vice Chair for Supervision Michelle Bowman expressing support for the Fed to finalize a revised Basel III Endgame rule. The senators urged the Fed to take a holistic approach to capital requirements and to utilize the lower capital levels that existed prior to the pandemic as a baseline. The letter noted that aggregate common equity tier 1 ratios for large U.S. banks had risen by more than 20 percent since 2020, which the senators attributed to balance sheet growth and economic expansion rather than increased risk. The letter cautioned that using current capital levels as a reference point could institutionalize excessive requirements, potentially leading to higher costs and reduced capital access for consumers and small businesses.
The senators also encouraged the Fed to avoid “structural duplication” in the revised proposal, noting the original proposed rule was “impracticable” and suggesting it would have increased the capital requirements for banks by approximately 25 percent. Finally, the letter urged the Fed to reassess the proposed increase in the securitization framework’s p-factor, urging the Fed to keep it at the status quo level (i.e., 0.5). The senators argued that further increases in capital requirements on securitizations, by raising the p-factor or otherwise, could constrain market liquidity and credit intermediation without materially contributing to financial stability.
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